Nearly one-third of small businesses fail because they run out of money. This is a concerning statistic that shows many business owners are making mistakes with budgets.
Taking care of business finances is something most entrepreneurs DIY. While bootstrapping your small business is normal, handling the finances can be complicated. One small mistake with your small business budget can lead to a variety of issues that end in business failure.
Fortunately, by avoiding a few common mistakes, you can handle your business finances with ease. If you are a business owner DIY’ing your finances, this budgeting guide is for you.
1. Not Following a Budget
One of the most basic mistakes many small businesses make is not following a budget. Some businesses will even create a budget but fail to follow it. Sticking to a budget is the easiest way to reduce your risk of business failure due to financial issues.
Follow a budget and check out this article on a personalized risk tolerance for more information.
2. Spending Too Much Money Too Soon
In the early stages of your business, you likely will not have many sources of income. However, a common mistake business owners make is spending money although little or none is coming into the business. Consider running a lean business until you have steady revenue coming in.
3. Setting Prices Too Low
A common problem with small businesses is setting prices too low. Many business owners think sales is all about price, causing them to set a price that is not sustainable. Your prices should be based on a variety of factors, including a solid pricing strategy, that will help your business grow and thrive.
Know your value and don't sell yourself short with lowball prices!
4. Underestimating or Overlooking Costs
Many small business owners underestimate or overlook costs. This leads to a variety of problems, ranging from not borrowing enough to start your company, to business failure. Make sure to account for every potential cost in your business so you are truly prepared for the amount you need to succeed.
If you fail to prepare for unexpected business costs then you should prepare to fail!
5. Overestimating Sales
While every business has goals for sales, overestimating how many sales the business will make is a common problem. This causes many business owners to enthusiastically spend money they don’t have and may never make. Be reasonable with your sales projections and avoid spending extra money until the sales are made.
6. Forgetting About Business Taxes
Many business owners have a budget, have an emergency fund, and seemingly do everything right. This is while forgetting about, or ignoring their business taxes. Not only will this result in problems with the IRS, but it can also result in expensive interest and late fees.
Don’t neglect your taxes. If you need help, hire an accountant. Purchase accounting software as well if needed.
Avoid These Small Business Mistakes With Budgets
Make sure you create and follow a budget. Don’t make your budget too complicated, spend too much money, or set your prices too low. Create realistic sales and costs projections and pay your taxes on time and in full.
Avoiding these budgeting mistakes will help you run a successful, and profitable, business.
Don’t forget to browse our site for more tips on bootstrapping your business. We're here to help you boost your bottom line!
